Preliminary figures show that Austria’s Lenzing Group, market leader in man-made cellulose fibres for the textile and nonwovens industries, has achieved record financial results in 2010. The determining factors for the result are reported as being the dynamic expansion of fibre production, very strong demand for the company’s fibres and significantly higher sales prices compared to the previous year.

Preliminary consolidated sales¹ increased by 45% from EUR 1.22 billion in 2009² to EUR 1.77 billion. Preliminary consolidated EBITDA rose by 76% from EUR 187.9 million to EUR 330.6 million. Preliminary consolidated income from operations (EBIT) more than doubled, increasing by 103% from EUR 114.2 million to EUR 231.9 million. Based on these preliminary results, the Lenzing Group has accordingly achieved the highest growth rates in its history for all financial key performance indicators.

 “In 2010, we benefitted from the expansion strategy we pursued in recent years. We could have sold even more fibers than we were able to produce. From our point of view, the 2010 business year was not a one-off event but the beginning of a long-term upward trend in the development of the manmade cellulose fiber business. The reason for this is the increasing structural shortage of cotton on the global market, which leads textile manufacturers to increasingly turn to alternatives such as Lenzing fibers”, explains Lenzing CEO Peter Untersperger, commenting on 2010’s preliminary results.

Additional capacity investment

The cotton shortage has led the Lenzing Group to lay the foundation for the most ambitious expansion program in its history in 2010. Lenzing plans to increase fibre production capacity from approximately 710,000 tons as of year-end 2010 by approximately 300,000 tons to more than one million tons by the end of 2014, mainly through expansion and modernization investments. In addition, the group plans to increase the share of pulp, the most important raw material used in the fibre production process, that it sources from its integrated own supply from currently 40% to more than two-thirds of the Group’s total requirements. Including maintenance investments, Lenzing plans to invest approximately EUR 1.5 billion through to 2014.

Fibers segment is growth driver  

With approximately 90% of consolidated sales, the Fibers segment, the group’s core business, was again the main growth driver in 2010. According to Lenzing, first estimates say that he global textile fibre market showed a dynamic upward development in 2010. Global fibre production is said to have increased 8.7% to 73.2 million tons, surpassing the previous record figure of 72.3 million tons in 2007. Also based on first estimates, the global production of man-made cellulose fibres reached an all-time high of 4.2 million tons (+12.9%).³

According to Lenzing, while cotton production rose by 13.0% compared to the very weak output in the previous year to 24.7 million tons, this increase was insufficient to fully satisfy demand. Flooding in Pakistan, India and, most recently, Australia further aggravated the situation, the company says and therefore, cotton prices, which serve as reference prices for the entire fibre industry, have shown an unprecedented upward trend. Since the beginning of 2010, the Cotton ‘A’ Index has increased by 180% to 219.50 ct/lb.

“We picked the right time to put the fourth production line at our subsidiary PT. South Pacific Viscose (SPV) in Indonesia into operation. In addition, we put in place debottlenecking programs at our viscose fiber factory in Nanjing/China and at SPV. Even with this dynamic expansion, we could not fully satisfy the strong demand for Lenzing fibers”, says COO Friedrich Weninger, who is also responsible for the Fibers segment. In total, Lenzing was able to increase its fibre production capacity from 605,000 tons to approximately 710,000 tons currently.

Concerning the pulp business, the acquisition of a 75% stake in the pulp mill Biocel Paskov (Czech Republic) was an important milestone. By means of a comprehensive investment program, Paskov is currently being converted into a swing capacity pulp plant that will be able to produce both paper and dissolving pulp.

Upward trend in fibre prices

Lenzing says the development of fibre prices in 2010 mainly reflected the strong demand and the physical shortage of cotton that started to become apparent in late summer 2010. Lenzing was able to take advantage of the upward trend in fibre prices to effect several price increases and thereby successfully offset rising raw material prices for wood, pulp and chemicals. “However, we intentionally decided not to fully match the cotton price increases, as we see ourselves as a long-term and responsible partner to our customers”, Weninger adds.

The strong demand for Lenzing fibres applied to the all textile and nonwovens business areas. Products such as the specialty fiber TENCEL C, which is said to exhibit especially skin-friendly features due to the integration of Chitosan micro-particles, were newly introduced. Lenzing also achieved a technical breakthrough in 2010 by developing new applications of TENCEL powder in foam mattresses.

Solid financial basis despite high investments

Lenzing says that the good earnings situation in 2010 allowed the group to maintain its solid balance sheet structure despite pursuing extensive investments⁴. Accordingly, it was able to reduce its net debt from EUR 315.7 million in 2009 to EUR 307.2 million in 2010, while increasing sales by 45%.

Investments amounted to EUR 285.1 million in 2010 (compared to EUR 165.6 million in 2009) and primarily related to the expansion of fibre production capacity and of energy supply at the production sites as well as by the acquisition of a 75% stake in the Biocel Paskov pulp mill.

“With a net debt that is lower than annual EBITDA and liquid funds as well as credit lines in excess of EUR 0.5 billion, we already are well positioned to implement our ambitious investment program”, as CFO Thomas Winkler summarizes the financial situation. “Lenzing is used to double-digit growth and has proven to be extremely crisis-resistant over the last 10 years”, Winkler adds.

Outlook

The group says that the upward trend in the global fibre market has continued during the first weeks of the current business year against the background of an overall satisfactory global economic development. The increasing scarcity of cotton has led to new all-time high prices for cotton. “The order situation of the Lenzing Group at the beginning of 2011 was gratifying. Fiber and pulp production were operating at full capacity at all sites. For the current business year, based on the assumption of a 10% increase of production compared to 2010, stable prices remaining at the levels as of the beginning of the 2011 business year and a moderate increase of costs, Lenzing expects to increase sales by 15-20% and further improve EBITDA and EBIT margins. Capex is estimated to amount to approx. 15% of sales. In view of the capital-intensive expansion program, the Lenzing management plans to propose a dividend payout of approx. 25% of consolidated net income (after minority interests) to its supervisory board and the annual general meeting,” the company said.

¹Continuing operations, all figures preliminary

²2009 figures adjusted

³Sources: CIRFS, Gherzi, Lenzing estimates, Fiber Economics Bureau, Cotton Outlook

⁴Investments in property, plant and equipment, financial assets and intangible assets